Editor's Note
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Blurring The Lines
Not only are index products (in particular ETFs) being marketed as tools for actively managing our own portfolios, but the indexes are becoming more active themselves. Is there value in all of these new offerings? If so, where is it? Is cap-weighting a fundamental attribute of a good benchmark? These issues are currently at the core of a heated debate in the index industry, so we thought we would have it out, right here, on the pages of the Journal of Indexes. Leading the issue, Steven Schoenfeld continues his valiant effort to set the rules for terminology in the "alternatively weighted" arena, which is really how most of these new indexes are formulated. He includes serious research replete with a plethora of correlation and performance comparisons. Next up are two new entrants in the alternatively weighted space-David Morris and Thomas Leake of GWA-who have teamed up with FTSE, who, of all the major index providers, has jumped most enthusiastically into the alternatively weighted space. Then we have Paul Kaplan and Sanjay Arya of Morningstar, who outline the latest offering in the rapidly burgeoning space of dividend-weighted indexes. Poor John Bogle must feel like a father whose perfect little child has turned into a teenager who dresses in black and chain-smokes Camels. But this issue, Bogle takes a break from railing on active indexers to focus on a new bandit-publicly owned management firms-with some shocking data that will make you think twice about the motivations of your asset manager. Rounding out the headliners are Michka Kovats and Ron Surz, who take aim at hedge funds (one of my favorite leisure activities) with articles entitled "The Emperor's New Clothes" and "Shame on the Sham," respectively. Need I say more? Add in new material from David Blitzer on the complications of globalization, together with a back page index crossword puzzle for the real indexing geeks among us, and I'd have to say you've got 64 pages of rip-roaring fun this issue.
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Well, it appears to be the epoch of active management in the index business, and it's our job to dutifully report on it. The lines between "active" and "indexed" are increasingly being blurred as a raft of enhanced index, alternatively weighted and even active index products come to market.
